Digital shopping now influences roughly 80% of the origination stream for new consumer checking relationships, yet 90% of new-to-bank checking accounts are still opened in the branch. This awkward juxtaposition has left many banks at a competitive disadvantage in the unfamiliar territory of digital marketing while also feeling hopelessly tied to expensive branch networks, where most new business is ultimately booked.
But banks need not resign themselves to this Catch-22. Rather than running on separate tracks, the branch and digital channels can increasingly be integrated by focusing on a growing category of “thin branch-ready” customers, so named because they have embraced functional ties to digital channels (shopping, transactions) to the point that they are ready to accept a narrowed role for the traditional branch (reassuring presence, high value sales, complex servicing).
Reflecting a growing familiarity and comfort level with digital and mobile banking, thin branch-ready customers not only transact the bulk of their banking activities online but also embrace online shopping when searching for banking products and providers. They remain emotionally attached to the branch, yet are sufficiently anchored in the digital space so as not to require an outlet on every corner.
Rising from 25% to 39% of the retail base in just the last two years, thin branch-ready customers now constitute the largest segment of primary checking customers, as revealed by the Novantas Bank Shopper Scorecard, based on a national consumer survey. They are not extremists who are ready to let go of branches completely, nor do they roam among channels indifferently; instead, they embrace digital as a growing “first instinct.”
The good news is that the interplay between digital functional attachment and branch relationship attachment presents new marketing and sales possibilities on the digital side and new long-term cost reduction opportunities on the branch side. However, to guard against competitive poaching in the digital space and sustain any possible momentum with former branch-centric customers, banks need to reorient their outreach to support the growing consumer preference for a digitally-anchored experience.
For starters, this includes solidifying and better promoting online and mobile banking capabilities, but the big picture is about organizational realignment. Leaders, business silos and staff across the bank need to get on board. Scattered efforts of the branch, digital, product, sales and marketing teams will not enable the bank to speak with one voice, which is critical in an era of accelerating digital migration.
Brand Perceptions
As highlighted by our research, thin branch-ready customers are more likely to cite online shopping as the most valuable shopping method, visit the branch infrequently, and yet remain emotionally attached to the network. In this setting, brand perceptions are less influenced by local branch presence and more a function of multi-channel marketing. In turn, the advantage for marketing-intensive banks surfaces when consumers decide to shop for a new checking relationship.
Increasingly, digitally-influenced shoppers focus on a small cluster of brands that have already caught their attention, or even go straight to the website of the favored candidate provider and delve right into product options. These patterns stand in sharp contrast with the traditional approach of going to the most convenient nearby branch and sitting at the desk of a platform banker to see what is available on the spot.
The very largest U.S. banks have natural appeal to thin branch-ready customers, both because of brand strength and because of the outsized investments these players are able to make in digital channels and capabilities. This appeal already is conferring competitive advantage to the mega-banks, both in winning consideration among online shoppers and in winning/maintaining local market share with a reduced branch count.
The situation does not foretell the end of the branch. But it does suggest a narrowing to a more defined role in selling complex products and non-routine servicing. In our consumer preference study, people were asked about their ideal channels for various types of bank interactions. Forty-five percent of respondents said they would still prefer to go to the branch when opening an additional deposit account with their current bank, compared with a 35% preference for digital channels.
When applying for a home equity loan or line of credit, 55% of respondents specified the branch, versus 33% for digital. The branch also remains the preferred channel for financial advice, eliciting a 44% response rate versus 18% for digital.
While service likewise remains a continuing branch strength, banks still should be working to shift more of the load to online channels. For problem resolution, 36% of survey respondents expressed a preference to go to a branch, with only 23% preferring digital channels. Tactics such as web-enabled interactive video with call center reps will help to shift that ratio, enhancing convenience for the growing ranks of thin branch-ready customers and helping with long-term initiatives for branch-related cost reduction.
Sales Relevance
Importantly, the branch’s refined core role in sales and service does not require massive network density. Locations will need to be selected or preserved more specifically on the basis of sales relevance. With transaction convenience and now marketing influence shifting online, old-school street corner presence does not guarantee market share.
This is not an abstract argument. One major bank has already been able to scale back its expensive branch presence in certain markets while preserving customer rapport and service through a combination of web and mobile banking and imaging-enabled ATMs. Elsewhere, this same bank is using its brand power and digital capabilities to penetrate expansion markets at low cost, using a small number of highly visible branches.
Nimble small players are resonating with thin branch-ready customers as well. Our research confirms that in some high-density markets, one new entrant has been able to gain meaningful traction through a blend of marketing, online appeal and a sprinkling of high-visibility banking centers that do not even have teller windows.
This new type of outreach requires a commitment both to digital marketing and to digital as a touchstone of the marketing message. New levels of sophistication and resource commitment are needed to catch the online shopper’s attention and reinforce brand imagery and perceptions of convenience. Current strengths in online and mobile banking applications typically need stronger promotion, product presentations need further simplification, and screen navigation and channel handoffs need to be improved to increase the odds that online shoppers will stay on the path to a purchase decision and account application.
From a larger perspective, the retail bank is committing itself to a new type of digital-led customer experience, raising the bar on the level of responsiveness and customer satisfaction required of non-branch channels. Unless the bank consistently emphasizes a new formula for the customer experience, digital-oriented customers will find themselves at odds with a branch-centric provider mentality. Internal stakeholders across the organization need to understand the strategy and their role in delivering it.
Our research clearly indicates that a tipping point has been reached in checking competition. Digital is becoming a swing factor in customer awareness and purchase consideration, and the branch is being recast in a more specialized role. The situation calls for a strategic reorientation around banking’s new core customer.
Mr. Musto and Mr. Kadin are managing directors at New York City-based Novantas Inc., respectively in the Boston and New York offices. They can be reached at [email protected] and [email protected].
